Moynihan reshapes Bank of America for an era without big legal costs

Peter Rudegeair

5 Min Read

NEW YORK (Reuters) - While Bank of America Corp (BAC.N) Chairman and Chief Executive Brian Moynihan has been working to end legal problems, he has also been quietly retooling the bank for a post-crisis world.

Bank of America Chairman and Chief Executive Brian Moynihan speaks during the Institute of International Finance Annual Meeting in Washington October 10, 2014. REUTERS/Joshua Roberts

He has taken more direct control over the bank’s retail business and shifted executives into new positions, sources familiar with the matter said. He has ordered officials at every level of the bank to think harder about how to sell more products to existing customers, a practice that many banks have tried but few have successfully executed.

Moynihan has also helped reshape the board, and his sway with directors only increased when he became chairman earlier this month, the sources said.

The broad changes that he has made signal that he is planning to remain at the bank for the long haul, a minimum of five years, they said.

Some investors have speculated that once Moynihan, a lawyer by training, was done with legal settlements linked to the 2008-2009 housing and financial crisis, he would head for the exits.

Sources at the bank said that notion was false. Key investors fully support Moynihan as well.

“Brian has done a superb job of taking the B of A back to basics and clearing up the problems from the past,” Warren Buffett, chairman and CEO of Berkshire Hathaway Inc (BRKa.N), wrote in an email to Reuters. “He is exactly the right CEO to move the company forward and has the ingredients in place to do so.” Berkshire Hathaway owns Bank of America preferred stock and warrants to buy 700 million common shares.

Some media outlets have speculated that when Moynihan does leave, Tom Montag, chief operating officer, will be in pole position to take the CEO spot. The sources at the bank dismissed that speculation, noting that Montag, 57, is older than Moynihan, 55, and that Moynihan is inclined to groom younger successors.

Results the bank posted on Wednesday underscore how much work Moynihan still has to do. The bank posted a $70 million loss for common shareholders, after setting aside an extra $5.6 billion to cover a settlement with the Department of Justice over shoddy bond mortgage underwriting.

That settlement is only the latest in a string: since 2010, Bank of America has agreed to pay more than $70 billion to resolve legal disputes and buy back bad mortgages linked to the financial crisis. The bank’s total tally of settlements seems to rise every quarter, to the chagrin of investors.

While the bank is hopeful that the worst of the settlements is behind it, its latest results show that its challenges extend beyond legal costs. Its revenue is stagnant, having hovered around $21 billion per quarter since 2012.

Moynihan is trying to boost the top line by selling more products to existing customers. The bank is pitching credit cards and home equity loans to its checking account holders, and is talking to its corporate borrowers about treasury and retirement-planning services.

These are standard moves for the head of a retail bank, but Bank of America is trying to take them a little further. In early October, it began offering a rewards program nationally to customers who do more business with the bank. Some of the perks include discounted rates on mortgages and home equity loans and greater benefits on credit cards. That program was launched in a few markets in June in a pilot program.

BIGGEST PROFIT ENGINE

To help ensure that his strategy is being properly implemented, Moynihan began directly overseeing retail banking - Bank of America’s biggest profit engine - earlier this year.

The heads of the retail banking group, Dean Athanasia and Thong Nguyen, had been reporting to David Darnell, a co-chief operating officer who oversaw all retail-facing businesses. In August, the bank said Darnell was becoming a vice chairman, and Athanasia and Nguyen, would instead report directly to the CEO.

Athanasia is co-leading the retail bank from Boston, a change for a group that had long been based in Charlotte, where Nguyen works.

Moynihan sees younger executives like Athanasia and Nguyen as among his possible successors, sources said, although there is no front-runner for that role.

Moynihan worked with Athanasia and Nguyen at FleetBoston, which Bank of America bought in 2004. Other FleetBoston executives have also been given top roles, including Terry Laughlin, who was chief risk officer until his appointment as president of strategic initiatives in April; Anne Finucane, the global chief strategy and marketing officer; and Christine Katziff, the bank’s chief auditor.

While Moynihan has reshaped the executive ranks, he has also helped shape the board: Eight of the 14 current directors, including Moynihan, have joined since he became CEO in 2010. A ninth, Charles Gifford, was chairman and chief executive of FleetBoston.